The interim government yesterday ap-proved a wider budget deficit for the 2007 fiscal year, from Bt100 billion to Bt146 billion, saying it needs extra funds to cover losses from several populist policies initiated during the Thaksin Shinawatra administration.

The Cabinet yesterday was informed of the unpaid liabilities of Bt204.5 billion as of September 30, 2006, the end of the 2006 fiscal year.

Of the total liabilities, Bt101.76 billion comes from the rice-pledging programme operated by the Bank for Agriculture and Agricultural Co-operatives and Public Warehouse Organisation, the Village Fund, and the Bt30 medical scheme.

"With these liabilities, it is this government that has to take the responsibility to clear the debts," said Deputy Prime Minister and Industry Minister Kosit Panpiemras, who was just one of the ministers bewildered by the figures.

Deputy Prime Minister and Finance Minister MR Pridiyathorn Devakula said after the Cabinet meeting yesterday that the government has to shoulder an additional Bt85.5 billion of unpaid liabilities during the fiscal year.

Of the total amount, Bt46 billion will be funded by an increase in the budget deficit and the central budget will be slashed from Bt81 billion to Bt44 billion. Governors and provincial authorities who have proposed spending for their respective areas will be affected by the cut.

The Cabinet also revoked the "CEO" title.

Pridiyathorn attributed the debts to the implementation of populist policies related to programmes such as agricultural product price intervention, compensation to victims of floods and bird flu, the public healthcare programme, as well as the additional allowances to teachers. The Village Fund Scheme alone, carried out by the Government Savings Bank and Bank for Agriculture and Agricultural Cooperatives, cost the government Bt78 billion. The two banks have so far received Bt49 billion and the government is obliged to pay them an additional Bt29 billion. The previous government approved the repayment of Bt16 billion during the 2008-2009 fiscal years. Thus, the government is also obliged to make a repayment of Bt13 billion in the 2007 fiscal year.

The programmes were launched during the Thaksin I and Thaksin II governments, to win popular votes particularly from the poor.

"In the fiscal year, Bt117.23 billion has been reserved for the repayment and the remaining Bt87.3 billion will be cleared in subsequent fiscal years," Pridiyathorn said.

In spite of the wider deficit, Pridiyathorn insisted it would not affect the country's fiscal position or the public debt, which stands at 41 per cent. The deficit accounts for 1.72 per cent of the country's gross domestic product, which is still lower than two per cent - a manageable level, he said.

The Cabinet yesterday approved an unchanged revenue collection target of Bt1.42 trillion, but the spending budget was raised by Bt46 billion to Bt1.57 trillion.

Fixed expenses total Bt1.13 trillion, or 72.2 per cent of the total budget. The government has allocated Bt379.87 billion, or 24.3 per cent, for investment. And the remaining Bt55.49 billion is reserved for repayment of loan principal. Pridiyathorn attributed the huge fixed expenses to the previous government's approval of higher pensions for retired civil servants.

The Bt146-billion deficit will be financed by long-term government bonds and short-term borrowings. The value of the issuance depends on the disbursement of the unpaid liabilities, Pridiyathorn said.

The government recently approved a plan to issue Bt839.19 billion worth of public-sector debt in fiscal 2007, which did not yet include the budget deficit.

The fiscal 2007 budget is expected to win approval from the National Legislative Assembly in late December, and disbursement of new spending in the fiscal 2007 budget should take place in early January, three months after the start of the fiscal year.